Relative Strength Index Triggers Reliable Buying And Selling Signals

Relative Strength Index is a most trustworthy technical indicator in online trading system that helps traders enter and exit trades

. It is a very simple but powerful momentum oscillator. Most of the investors use it to invest in the stock market. It has proved its reliability over the period. In short it is called RSI. It has buying as well as selling aspects. We would take here the buying aspect of RSI in online trading system.

The relative strength index comes under the category of momentum oscillator. This particular momentum oscillator is utilized to measure if the price momentum is increasing in upward direction or in downward direction.

Online trading system of relative strength index is similar to all other momentum oscillators. It reveals the new highs, lows or zigzag movements of the market. Further recent price and volume data is used by RSI in arriving at whether the current trend is likely to continue or coil back to its prior state. One of the most important functioning of the relative strength index is to pinpoint oversold and overbought signals.

The Relative Strength Index is mapped out on a scale ranging from 0 to 100. The admeasurements of the latest price gains versus losses of the stock are compared and thereafter this relationship is interpreted into a number between 0 and 100-

RSIs central line is 50. It is called bullish territory if the number is above 50 and below it is called bearish territory. If the number arrived at is 50, this indicates that the stock is lying in the middle; neither it is going up nor down. Relative strength index online trading system is most reliable only if it is utilized on trending stocks.

Before entering a trade with relative strength index online trading system, there are three situations that you have to take care. One is overbought. If there is huge buying and stocks price is considered too high and susceptible to a downfall, then this is a technical condition of overbought. Second is oversold. This technical condition occurs when lot of selling is done in the market and stocks price is considered too low and a rally in prices is expected. There is a third condition that is Divergence. This condition occurs when the price of the stock is going in one direction and technical indicator is moving in the opposite direction.

The oversold conditions in relative strength index are indicated by values ranging between 0 and 30 and overbought conditions are displayed by values ranging between 70 and 100. At times some traders use 80 and 20 for overbought and oversold signals.

by: Joan Weisman

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